IFN Monthly Article on Nigeria: July 2017 Issue

Nigeria: Eyes still on the Sovereign Sukuk ball

Nigeria’s Islamic finance industry has been buzzing with excitement ever since the Federal Government, through its Debt Management Office (DMO), announced its readiness to issue the country’s first sovereign sukuk: a N100 billion ($374.73 million) sukuk al-ijarah to build and rehabilitate roads. This comes almost four years after the Osun State Government issued the first sukuk in Nigeria in 2013. The respectable 14% oversubscription rate on Osun’s N11.4 billion (then $72.4 million) sukuk was an indication of the thirst for shari’ah compliant instruments in the country. It is therefore no surprise that industry operators eagerly anticipate this maiden sovereign issue.

Apart from funding critical infrastructure termed ‘economic roads’, the upcoming sovereign sukuk is expected to address some of the Islamic finance industry’s inherent liquidity challenges as well as provide operators with low risk returns heretofore only obtainable on conventional instruments. Furthermore, banks, takaful operators and asset managers are already mulling the possibilities of developing new products on the back of the sukuk to better serve and expand their customer bases. The prospect of corporates and state governments following suit to issue sukuk could diversify the basket of investible instruments even further.

In the build up to the sovereign sukuk issuance, key regulatory agencies such as the Central Bank of Nigeria, Federal Inland Revenue Service and the Securities Exchanges have issued frameworks that accommodate sukuk. The Federal Inland Revenue Service in particular recently reaffirmed the tax status of sukuk as equal to conventional bonds, exempting sukuk from capital gains tax, stamp duties and value added tax. In addition, the National Pension Commission has approved guidelines allowing Pension Funds (with over N6 trillion ($19.67 billion) in assets) to invest in sukuk.

Nigeria’s debut sovereign sukuk also heralds new leadership at the helm of affairs at the DMO. The new Director General, Ms Patience Oniha is a veteran of the DMO and brings to bear several decades of cogent experience in banking and public finance. So far in 2017, the DMO has successfully issued a $1billion eurobond and $300million diaspora bond in addition to the Federal Government Savings bond and regular domestic bond issuance. Consequently, expectations are high for the success of Nigeria’s debut sukuk. Ms Oniha has expressed commitment to the sukuk issuance and her stellar track record suggests even bolder sukuk aspirations. Industry participants anticipate a US$ sukuk issuance in the near future.

All eyes are on Nigeria as it gets set to join its African counterparts (South Africa, Ivory Coast, Togo and Senegal) in the sovereign sukuk market.